EXHIBIT 10.16
EXECUTIVE PURCHASE AGREEMENT
THIS EXECUTIVE PURCHASE AGREEMENT (this "Agreement") is made as of July 8,
1998, by and between Choice One Communications L.L.C., a Delaware limited
liability company (the "LLC"), Choice One Communications Inc., a Delaware
corporation (the "Corporation"), and ▇▇▇ ▇▇▇▇▇▇-▇▇▇ ("Executive"). Capitalized
terms used but not otherwise defined herein have the meanings ascribed to such
terms in Section 7 hereof.
WHEREAS, Executive desires to make an investment in the Corporation to be
held initially through an interest in the LLC, and the LLC, the Corporation and
the Executive desire to provide for certain rights and obligations relating to
such investment and to Executive's employment with the Corporation;
NOW, THEREFORE, in consideration of the mutual promises made herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
Section 1. Purchase and Sale of Executive Securities.
(a) Initial Capital Contribution and Issuance of Executive Securities.
Upon execution of this Agreement, Executive shall make a capital contribution
to the LLC in the amount of $45,004.50 (Executive's "Initial Capital
Contribution") in exchange for, and the LLC shall issue to Executive, 450,045
Class B Units having the rights, obligations, and preferences set forth with
respect thereto in the LLC Agreement. The Executive shall make such Initial
Capital Contribution to the LLC by delivery to the LLC of a cashier's or
certified check, or wire transfer of immediately available funds to an account
designated by the LLC, in the aggregate amount equal to such Executive's Initial
Capital Contribution. The aggregate amount of the Initial Capital Contribution
made with respect to each Class B Unit issued hereunder shall be considered a
Basic Contribution made with respect to such Class B Unit. Subsequent
Contributions to the LLC shall be made by the Executive in respect of such Class
B Units on the terms and conditions set forth in the LLC Agreement.
(b) Representations and Warranties of Executive. In connection with the
Executive's Initial Capital Contribution and the issuance of the Executive
Securities hereunder, the Executive Purchaser represents and warrants to each of
the LLC and the Corporation that:
(i) The Executive Securities to be acquired by the Executive
Purchaser pursuant to this Agreement shall be acquired for the Executive
Purchaser's own account and not with a view to, or the intention of,
distribution thereof in violation of the Securities Act or any applicable
state securities laws, and the Executive Securities shall not be disposed
of in contravention of the Securities Act or any applicable state
securities laws.
(ii) Executive is a management employee of the Corporation, and the
Executive Purchaser is sophisticated in financial matters and is able to
evaluate the risks and benefits of the investment in the Executive
Securities.
(iii) Executive Purchaser is able to bear the economic risk of his
investment in the Executive Securities for an indefinite period of time and
is aware that transfer of the Executive Securities may not be possible
because (A) such transfer is subject to contractual restrictions on
transfer set forth herein and in the Transaction Agreement, and (B) the
Executive Securities have not been registered under the Securities Act or
any applicable state securities laws and, therefore, cannot be sold unless
subsequently registered under the Securities Act and such applicable state
securities laws or an exemption from such registration is available.
(iv) Executive has had an opportunity to ask questions and receive
answers concerning the terms and conditions of the offering of the
Executive Securities issued hereunder and has had full access to such other
information concerning the Corporation and this investment opportunity as
he has requested.
(v) Each of this Agreement, the LLC Agreement, the Transaction
Agreement, and the other agreements contemplated thereby of even date
therewith to which Executive Purchaser is a party, constitute the legal,
valid and binding obligations of the Executive Purchaser, enforceable
against the Executive Purchaser in accordance with its terms; Executive is
ready, willing and able as of the date hereof to commence and to continue
employment with the Corporation in the office to which Executive was
appointed by the Board; and the execution, delivery and performance of such
agreements by Executive, and Executive's employment with the Corporation
and activities (including recruiting activities) on behalf of the
Corporation, do not and will not conflict with, violate or breach any
agreement, contract or instrument (including, without limitation, any
noncompete agreement or restrictive covenant instrument) to which
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Executive is a party or by which Executive is bound or any judgment, order
or decree to which Executive is subject.
(c) Acknowledgment of At-Will Employment. As an inducement to the LLC
and the Corporation to enter into this Agreement, and as a condition thereto,
the Executive acknowledges and agrees that no agreement or arrangement between
the Executive and the Corporation or the LLC (including, without limitation, the
issuance of the Executive Securities to the Executive and the execution and
delivery of this Agreement) shall entitle Executive to remain in the employment
of the Corporation and its Subsidiaries or affect the right of the Corporation
or its Subsidiaries to terminate Executive's employment at any time or for any
reason.
Section 2. Vesting of Executive Securities.
(a) Vesting Schedule. All Executive Securities shall initially be
Unvested Securities (as defined below). Except as otherwise provided herein, an
amount of Unvested Securities shall vest on the date hereof and on each of the
first four anniversaries of the date hereof, such that the Executive Securities
shall be vested on each such date in accordance with the following schedule:
---- ------------------------
Date Cumulative Percentage of
Executive Securities
Vested
The date hereof 20%
The first anniversary of the date hereof 40%
The second anniversary of the date hereof 60%
The third anniversary of the date hereof 80%
The fourth anniversary of the date hereof 100%
Notwithstanding the foregoing sentence, and except as otherwise provided in
clauses (b)-(e) below or in the next sentence (in the case of termination
without Cause or for Good Reason), the above vesting schedule shall cease and no
Unvested Securities shall vest after the date on which Executive's employment
with the Corporation and its Subsidiaries terminates for any reason. If
Executive's employment is terminated by the Corporation without Cause or if
Executive terminates his employment for Good Reason, the Executive Securities
shall thereafter, if necessary, continue to vest until the next anniversary of
the date hereof next succeeding such termination (such that the Executive will
be vested in 20% more of the Executive Securities than at the time of such
termination) and if
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at least 50% of the Executive Securities have not been vested as of such next
anniversary, then vesting will continue to the extent necessary that at least
50% of the Executive Securities become vested, so long as Executive has not
committed a Vesting Termination Breach (upon which breach the vesting schedule
shall immediately cease, and no Unvested Securities shall vest on or after the
date of the first such breach). In the event the LLC or the Corporation has
alleged that Executive has committed a Vesting Termination Breach, Executive
disputes such allegation, and the matter is subject to the dispute resolution
provisions set forth in Section 6, vesting shall be tolled upon the date of the
allegation of such breach; provided that (i) if it is ultimately resolved under
Section 6 that Executive has committed a Vesting Termination Breach, the tolling
shall become a permanent cessation such that vesting shall have forever ceased
upon the date of such allegation, and (ii) if it is ultimately resolved under
Section 6 that Executive did not commit a Vesting Termination Breach, the number
of Vested Securities shall be as though there had never been such alleged breach
or any tolling of vesting. Executive Securities which have become vested
pursuant to this Agreement are referred to herein as "Vested Securities," and
all other Executive Securities are referred to herein as "Unvested Securities."
(b) Acceleration upon a Qualified Sale of the Corporation. Unvested
Securities subject to vesting pursuant to Section 2(a) shall become Vested
Securities upon the consummation of a Qualified Sale of the Corporation (as
defined below) so long as Executive is employed by the Corporation or any of its
Subsidiaries on the date of such sale (or, if Executive's employment was
terminated by the Corporation without Cause or by Executive for Good Reason, so
long as Executive has not committed a Vesting Termination Breach prior to the
date of such sale). A "Qualified Sale of the Corporation" means either (i) the
sale, lease, transfer, conveyance or other disposition, in one or a series of
related transactions, of all or substantially all of the assets of the
Corporation and its Subsidiaries, taken as a whole, or (ii) a transaction or
series of transactions (including by way of merger, consolidation, or sale of
stock, but not including a Public Offering) the result of which is that the
holders of the Corporation's outstanding voting stock immediately prior to such
transaction are after giving effect to such transaction no longer, in the
aggregate, the "beneficial owners" (as such term is defined in Rule 13d-3 and
Rule 13d-5 promulgated under the Securities Exchange Act), directly or
indirectly through one or more intermediaries, of more than 50% of the voting
power of the outstanding voting stock of the Corporation, in each case where the
consideration for such assets or stock in such sale or transfer consists of cash
and/or publicly traded equity securities for such assets or for at least 50% of
the outstanding stock of the Corporation (e.g., 100% of such consideration would
have to consist of cash and/or publicly traded equity securities if only 50.01%
of such stock were sold in such transaction).
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(c) Acceleration upon a Public Offering. Upon the consummation of the
Corporation's initial Public Offering, and so long as Executive is employed by
the Corporation or any of its Subsidiaries on the closing date of such offering
(or, if Executive's employment was terminated by the Corporation without Cause
or by the Executive for Good Reason, so long as Executive has not committed a
Vesting Termination Breach prior to such closing date), there will vest the
amount of Unvested Securities which were scheduled to vest within the 365 days
following such closing date (and the remaining Unvested Securities subject to
vesting pursuant to Section 2(a), if any, shall continue to vest 20% on each
anniversary of the date hereof in accordance with clause (a) above, such that
the vesting schedule set forth in Section 2(a) above shall have been effectively
accelerated by one year).
(d) Acceleration upon Death or Disability. All Unvested Securities
shall become Vested Securities if Executive's employment with the Corporation or
any of its Subsidiaries terminates by reason of Executive's death or Disability.
(e) Other Acceleration. Any Unvested Securities which the LLC (or its
assignees) has not elected to repurchase in the Repurchase Notice (as defined
below) (including Unvested Securities originally included in the Repurchase
Notice, but for which the election to repurchase was rescinded, pursuant to the
terms of Section 3, by the LLC and/or its assignees having made such election)
shall thereafter be deemed Vested Securities, but shall continue to be subject
to Section 4.
Section 3. LLC's Repurchase Option.
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(a) The Repurchase Option. The LLC will be entitled to repurchase at
the LLC's election pursuant to the terms and conditions set forth in this
Section 3 (the "Repurchase Option"), (i) upon (x) the termination of Executive's
employment with the Corporation and its Subsidiaries for any reason other than a
termination by the Corporation without Cause or by the Executive for Good
Reason, or (y) if Executive's employment is terminated by the Corporation
without Cause or by the Executive for Good Reason, upon Executive's commission
of a Vesting Termination Breach, all the Executive Securities then in existence
(whether held by Executive or one or more of the other Executive Purchasers)
and/or (ii) in the event of a termination without Cause or for Good Reason and
prior to commission of a Vesting Termination Breach, such of the Unvested
Securities as are not subject to continued vesting pursuant to Section 2(a) (any
such circumstance permitting repurchase, a "Repurchase Event"). In the event
that the LLC or the Corporation has alleged that Executive has committed a
Vesting Termination Breach, Executive disputes such allegation, and the matter
is subject to the dispute resolution provisions set forth in Section 6, the
closing of the repurchase of Executive Securities permitted to be repurchased
only upon such breach under this Section 3 shall not occur unless and until it
is ultimately determined that Executive committed a Vesting Termination Breach;
provided that during the pendency of such proceeding, such Executive Securities
specified in the Repurchase Notice (as defined below) shall not be transferred
by any holder thereof to any other Person.
(b) Repurchase Price. The repurchase price (the "Repurchase Price") for
50% of the Vested Securities to be repurchased shall be the Fair Market Value of
such securities. The Repurchase Price of the remaining 50% of the Vested
Securities and of all of the Unvested Securities to be repurchased shall be the
lesser of (x) the Fair Market Value of such Securities, and (y) the Original
Cost of such Securities (with securities having the lowest Original Cost subject
to repurchase prior to securities with a higher Original Cost).
(c) Exercise of Repurchase Option. The LLC (by action of the Board) may
elect to purchase all or any portion of the Executive Securities permitted to be
repurchased by delivering written notice (the "Repurchase Notice") to the holder
or holders of the Executive Securities within 90 days after the occurrence of
the applicable Repurchase Event. The Repurchase Notice shall set forth the
amount, type, and class of Executive Securities (including, if applicable, the
amount of Unvested Securities and/or Vested Securities) to be acquired from each
such holder (which need not be pro rata among type of security or among Vested
Securities and Unvested Securities). The Executive Securities to be repurchased
by the LLC shall first be satisfied to the extent possible from the Executive
Securities held by Executive at the time of delivery of the Repurchase Notice.
If the amount of Executive Securities then held by Executive is less than the
total
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amount of Executive Securities that the LLC has elected to purchase, the LLC
shall purchase the remaining securities elected to be purchased from the other
holder(s) of Executive Securities (to whom Executive has transferred Executive
Securities pursuant to Section 4(c)(i)), pro rata according to the amount of
Executive Securities held of record by each such other holder at the time of
delivery of the Repurchase Notice. The amount of Unvested Securities and Vested
Securities to be repurchased hereunder shall be deemed to be allocated among
Executive and the other holders of repurchased Executive Securities (to whom
Executive has transferred Executive Securities pursuant to Section 4(c)(i)), if
any, pro rata according to the amount of Executive Securities to be purchased
from such persons.
(d) Assignment by the LLC. The LLC, by action of the Board, will have
the right to assign all or any portion of its repurchase rights hereunder to the
holders of Investor Equity (which assignment, if made to the holders of Investor
Equity, would be pro rata on the basis of the Investor Equity held by each such
holder) and/or to any executive employee of the Corporation or any of its
Subsidiaries. Notwithstanding the foregoing, the LLC may not assign to any
Person its right to pay a portion of the Repurchase Price for Executive
Securities repurchased hereunder in the form of Class C Units (or, after the
dissolution of the LLC, a promissory note).
(e) Fair Market Value of Repurchased Securities. The "Fair Market
Value" of Executive Securities subject to repurchase hereunder shall be
determined in accordance with this paragraph (e) as follows:
(i) The Board of the LLC and the holders of a majority of the
Executive Securities to be repurchased shall attempt in good faith to agree
on the Fair Market Value of the Executive Securities. Any agreement
reached by such Persons shall be final and binding on all parties hereto.
(ii) If such Persons are unable to reach such agreement within 20
days after the giving of a Repurchase Notice, the Fair Market Value of any
Executive Securities that are publicly traded shall be the average, over a
period of 21 days consisting of the date of the applicable Repurchase Event
and the 20 consecutive business days prior to that date, of the average of
the closing prices of the sales of such securities on all securities
exchanges on which such securities may at that time be listed, or, if there
have been no sales on any such exchange on any day, the average of the
highest bid and lowest asked prices on all such exchanges at the end of
such day, or, if on any day such securities are not so listed, the average
of the representative bid and asked prices quoted in the Nasdaq System as
of 4:00 P.M., New York time, or, if on any day such securities are not
quoted
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in the Nasdaq System, the average of the highest bid and lowest asked
prices on such day in the domestic over-the-counter market as reported by
the National Quotation Bureau Incorporated, or any similar successor
organization.
(iii) If such Persons are unable to reach agreement pursuant to
paragraph (ii) within 20 days after the giving of a Repurchase Notice, and
to the extent any Executive Securities are not publicly traded:
(A) The Board of the LLC and the holders of a majority of the
Executive Securities shall each, at the same time, within 10 days
thereafter, choose one investment banker or other appraiser with
experience in analyzing and making determinations concerning matters
in the telecommunications industry and in valuing entities like the
LLC (including the distribution arrangements of the type described in
the LLC Agreement), and, within 15 days of their selection, the two
investment bankers/appraisers so selected shall together select a
third investment banker/appraiser similarly qualified.
(B) The three investment bankers/appraisers shall first
appraise the fair market value of the Corporation (based on the
assumption of an orderly, arm's length sale to a willing unaffiliated
buyer). Each of the three investment bankers/appraisers shall then
independently appraise the fair market value of such non-publicly-
traded Executive Securities as follows:
(1) the fair market value of each share of Common Stock
shall be equal to the fair market value of the Corporation
divided by the total number of shares of Common Stock outstanding
on the date of the applicable Repurchase Event (determined on a
fully diluted basis (x) with respect to all outstanding
securities convertible into the Corporation's Common Stock,
assuming the conversion of such convertible securities (without
regard to any conditions or other restrictions on such
conversion), and (y) with respect to all outstanding options,
warrants and other rights or securities exercisable or
exchangeable for shares of the Corporation's Common Stock, in
accordance with the Treasury Stock Method under generally
accepted accounting principles for determination of fully diluted
earnings per share);
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(2) the fair market value of each Class B Unit shall be
equal to the fair market value of the assets (as determined in
accordance with paragraphs (B)(1) and (B)(3)) that would be
distributed according to the terms of the LLC Agreement with
respect to such Class B Unit if the LLC were dissolved on the
date of the applicable Repurchase Event; and
(3) the fair market value of any other non-publicly-
traded Executive Securities (or, for purposes of paragraph (B)(2)
above, any other assets) shall be the fair market value of such
securities (or other assets), determined on the basis of an
orderly, arm's length sale to a willing, unaffiliated buyer,
taking into account all relevant factors determinative of value.
The three investment bankers/appraisers shall, within thirty days
of their retention, provide the written results of such
appraisals to the LLC and/or its assignees and to each of the
holders of Executive Securities.
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(C) The "Fair Market Value" of the non-publicly-traded
Executive Securities to be repurchased shall be the average of the two
appraisals closest to each other, and such amount shall be final and
binding on all parties hereto; provided that the LLC (and/or any
assignee) may at any time within ten days after receiving written
notice of such determination rescind its prior exercise of the
Repurchase Option by giving written notice of such revocation to all
of the holders of the Executive Securities to be repurchased, and upon
such revocation the revoking party will be treated as if it had never
exercised such Repurchase Option (it being understood that such
revoking parties shall thereafter have no right to re-exercise such
Repurchase Option).
(D) The costs of such appraisal shall be allocated between
the parties based on the percentage which the portion of the Contested
Amount not awarded to each party bears to the amount actually
contested by such party; provided that if any parties revoke their
exercise of the Repurchase Option pursuant to paragraph (C) above,
such revoking parties shall bear (pro rata among such revoking parties
based on the number of Executive Securities with respect to which each
such revoking party had initially exercised its Repurchase Option) any
appraisal costs that would be allocated to the holder(s) of Executive
Securities under this paragraph (D). "Contested Amount" means the
difference between the valuations of the disputing parties.
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(f) Closing of the Repurchase. Within 10 business days after the
Repurchase Price for the Executive Securities to be repurchased has been
determined, the LLC shall send a notice to each holder of Executive Securities
setting forth the consideration to be paid for such securities and the time and
place for the closing of the transaction, which date shall not be more than 30
days nor less than five days after the delivery of such notice. At such
closing, the holders of Executive Securities shall deliver all certificates (if
any exist) evidencing the Executive Securities to be repurchased to the LLC
(and/or any assignees of the LLC's repurchase right), and the LLC (and/or any
assignees) shall pay for the Executive Securities to be purchased pursuant to
the Repurchase Option by delivery of a check or wire transfer of immediately
available funds in the aggregate amount of the Repurchase Price for such
securities; provided that in the event the Board determines in its good faith
discretion that the LLC is not in a position to pay in cash any or all of the
Repurchase Price for Executive Securities to be repurchased by it:
(i) prior to the dissolution of the LLC, the LLC may pay a portion
of the Repurchase Price for such securities equal to (x) the aggregate
Repurchase Price for the Executive Securities to be repurchased by the LLC
minus (y) the Original Cost of such securities, by issuing in exchange for
such securities an equal number of the LLC's Class C Units (having the
rights and preferences set forth in the LLC Agreement), and for purposes of
the LLC Agreement each such Class C Unit shall as of its issuance be deemed
to have Basic Contributions made with respect to such Class C Unit equal to
(A) the aggregate portion of the Repurchase Price paid by the issuance of
Class C Units divided by (B) the number of Class C Units so issued in such
repurchase; or
(ii) after the dissolution of the LLC, the Corporation (as
successor to the rights of the LLC under Section 8(f)(ii) below) may pay,
in the form of a promissory note, a portion of the Repurchase Price for
such securities equal to (x) the aggregate Repurchase Price for the
Executive Securities to be repurchased by the LLC minus (y) the Original
Cost of such securities. Such a promissory note shall be subordinated to
all of the Corporation's senior debt obligations either then or thereafter
incurred, shall earn simple annual interest at the Base Rate, shall have
all principal and accrued interest due and payable upon maturity, and shall
mature upon the earliest to occur of the Corporation's initial Public
Offering (if such initial Public Offering has not occurred prior to the
issuance of such promissory note), a Qualified Sale of the Corporation, or
the fifth anniversary of the issuance of such promissory note.
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The purchasers of Executive Securities under this Section 3 shall be
entitled to receive customary representations and warranties from the sellers
regarding good title to such securities, free and clear of any liens or
encumbrances.
(g) Restrictions. Notwithstanding anything to the contrary contained in
this Agreement, all repurchases of Executive Securities by the LLC shall be
subject to applicable restrictions contained in the Delaware General Corporation
Law, the Delaware Limited Liability Company Act or in the LLC's or its
Subsidiaries' debt and equity financing agreements or imposed by applicable law
(such as the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976). If any such
restrictions prohibit the repurchase of Executive Securities which are otherwise
permitted or required hereunder, the time periods provided in this Section 3
shall be suspended, and the LLC may make such repurchases as soon as it is
permitted to do so under such restrictions, unless by such time such Repurchase
Option has terminated pursuant to Section 3(h); provided that notwithstanding
the foregoing, in no event shall the time periods provided in this Section 3 be
suspended for more than 6 months.
(h) Termination of Repurchase Option. The rights under this Section 3
of the LLC and/or its assignees to repurchase Vested Securities (but not
Unvested Securities) shall terminate upon the consummation of a Public Offering.
All rights under this Section 3 of the LLC and/or its assignees to repurchase
Executive Securities (including both Vested Securities and Unvested Securities)
shall terminate upon a Qualified Sale of the Corporation.
Section 4. Restrictions on Transfer.
(a) Opinion of Valid Transfer. In addition to any other restrictions on
transfer imposed by this Agreement, the Transaction Agreement, the LLC Agreement
or the Registration Rights Agreement, no holder of Executive Securities may
sell, transfer or dispose of any Executive Securities (except pursuant to an
effective registration statement under the Securities Act) without first
delivering to the LLC an opinion of counsel (reasonably acceptable in form and
substance to the LLC) that neither registration nor qualification under the
Securities Act or applicable state securities laws is required in connection
with such sale, transfer, or other disposition.
(b) Restrictive Legend. The certificates representing Executive
Securities shall bear the following legend:
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"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED ON JULY
8, 1998, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE, AND SUCH SECURITIES MAY NOT BE
SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER. THE SECURITIES REPRESENTED
BY THIS CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AND
REPURCHASE OPTIONS SET FORTH IN AN EXECUTIVE PURCHASE AGREEMENT BETWEEN THE
ISSUER OF SUCH SECURITIES (THE "ISSUER") AND THE INITIAL HOLDER OF SUCH
SECURITIES. A COPY OF SUCH AGREEMENT MAY BE OBTAINED BY THE HOLDER HEREOF AT THE
ISSUER'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE."
The legend set forth above shall be removed from the certificates
evidencing any shares or units which cease to be Executive Securities.
(c) Retention of Executive Securities. Executive Purchaser shall not at
any time directly or indirectly sell, transfer, assign, pledge or otherwise
dispose of (whether with or without consideration and whether voluntarily or
involuntarily or by operation of law) any interest in any Executive Securities
(a "Transfer"),
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except (w) pursuant to the repurchase provisions of Section 3 hereof or of
Section 3.04 of the LLC Agreement, (x) pursuant to a Drag-Along Sale (as defined
in the Transaction Agreement) under Section 6.06 of the Transaction Agreement,
(y) after an initial Public Offering, as permitted in Section 4(c)(ii) below or
(z) pursuant to Section 4(c)(iii) below (each of (w), (x), (y) and (z) above, an
"Exempt Transfer"). The restrictions on the Transfer of Executive Securities set
forth in this paragraph (c) shall continue in effect (1) with respect to each
Executive Security following any permitted Transfer thereof pursuant to Section
4(c)(i), but shall cease upon any Exempt Transfer thereof and (2) following
termination of Executive's employment for any reason.
Notwithstanding the foregoing provisions of this clause (c):
(i) the Executive will be permitted to transfer, with or without
consideration, Executive Securities (A) pursuant to applicable laws of
descent and distribution or (B) among Executive's Family Group; provided
that the restrictions contained in this Section shall continue to be
applicable to, and bind the transferee of, the Executive Securities after
any such transfer, the transferees of such Executive Securities shall have
agreed in writing in an instrument satisfactory in form and substance to
the Board to be bound by the provisions of this Agreement, the LLC
Agreement, the Registration Rights Agreement and the Transaction Agreement
with respect to the Executive Securities so transferred, and (prior to the
death of Executive) each such transferee of Executive Securities shall have
entered into proxies and other agreements satisfactory to the Board
pursuant to which Executive shall have the sole right to vote such
Executive Securities for all purposes. For purposes of this Agreement,
"Family Group" means Executive's spouse and descendants (whether natural or
adopted), any trust which at the time of such transfer and at all times
thereafter is and remains solely for the benefit of Executive and/or
Executive's spouse and/or descendants and any family partnership the
partners of which consist solely of Executive, such spouse, such
descendants or such trusts.
(ii) After the initial Public Offering, (x) all Transfer
restrictions on Unvested Securities shall continue in effect and (y)
Transfer restrictions on Vested Securities will terminate upon the fourth
anniversary of closing (the "IPO Closing") of the initial Public Offering.
Transfers of Vested Securities prior to the fourth anniversary of the IPO
Closing will only be permitted to the following extent:
(A) At any time prior to the fourth anniversary of the IPO
Closing, Executive will be permitted to Transfer a number of
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Vested Securities that (together with Vested Securities previously
Transferred in an Exempt Transfer) in the aggregate as a percentage of
Executive Securities held by Executive as of the IPO Closing (the
"Initial CS Holdings") does not exceed the percentage of MSCP's
Investor Equity held as of the IPO Closing that has since been sold.
(B) During the two year period ending on the second
anniversary of the IPO Closing, Executive will be permitted (1) (a) to
pledge (but not otherwise Transfer) a number of Vested Securities that
(together with Vested Securities previously Transferred in an Exempt
Transfer) in the aggregate does not exceed 25% of the Initial CS
Holdings and (b) to Transfer a number of Vested Securities that does
not exceed 5% of the Initial CS Holdings in any one year period and
that does not exceed 10% of the Initial CS Holdings in such two year
period (such 5% and 10% shall be reduced by any amount previously
Transferred in an Exempt Transfer) or (2) if greater, to Transfer the
number of Vested Securities permitted to be Transferred pursuant to
clause (c)(ii)(A) above.
(C) At any time after such second anniversary of the IPO
Closing and before such fourth anniversary of the IPO Closing,
Executive will be permitted to Transfer the greater of (1) a number of
Vested Securities that (together with Vested Securities previously
Transferred in an Exempt Transfer) in the aggregate does not exceed
50% of the Initial CS Holdings and (2) the number of Vested Securities
permitted to be Transferred pursuant to clause (c)(ii)(A) above.
(iii) In addition to the foregoing permitted Transfers, the Board
may, in its discretion, permit Transfers by the Executive at any time in
the case of personal hardship (such as personal or family illness).
Section 5. Issuance of Tier I and Tier II Options.
(a) In the event of a dissolution of the LLC upon the consummation of a
Public Offering (a "Public Offering Liquidation"), if the Management Percentage
for such Public Offering Liquidation is less than 33.33% the Corporation shall
contemporaneously with such liquidation issue to each holder of Class B Units:
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(i) options (the "Tier I Options") entitling the holder to acquire,
at an exercise price per share equal to the IPO Price, a number of shares
of the Corporation's Common Stock equal to the lesser of (x) the number of
shares of Common Stock that such holder would have received under the LLC
Agreement in connection with such Public Offering Liquidation if the
Management Percentage had been 10%, and (y) the difference of (A) the
number of shares of Common Stock that such holder would have received in
connection with such Public Offering Liquidation if the Management
Percentage had been 33.33%, minus (B) the number of shares of Common Stock
that such holder actually received in such liquidation; and
(ii) if the Management Percentage for such Public Offering
Liquidation is less than 23.33%, in addition to any Tier I Options, options
(the "Tier II Options") entitling the holder to acquire, at an exercise
price per share equal to the Tier II Price, a number of shares of the
Corporation's Common Stock equal to the lesser of (x) the number of shares
of Common Stock calculated pursuant to clause (i)(x) above, and (y) the
difference of (A) the number of shares of Common Stock calculated pursuant
to clause (i)(y) above, minus (B) the number of shares of Common Stock into
which the Tier I Options issued to such holder pursuant to clause (i) above
are initially exercisable.
The Tier I Options and Tier II Options shall expire on the seventh
anniversary of their issuance.
(b) For purposes of performing the calculations in Sections 5(a)(i) and
5(a)(ii) above, a distribution of any property other than Common Stock in a
Public Offering Liquidation shall be considered to have been a distribution of a
number of shares of Common Stock equal to the quotient of (A) the aggregate fair
market value of such distributed property on the date of such liquidation, as
determined in good faith by the Board, divided by (B) the fair market value of
one share of Common Stock on the date of such liquidation, as determined in good
faith by the Board.
(c) For purposes of this section, the following terms shall have the
meanings set forth below:
"IPO Price" means the gross price per share at which shares of the
Corporation's Common Stock are initially offered and sold to the public in
connection with a Public Offering.
16
"Liquidation FMV" has the meaning ascribed to such term in the LLC
Agreement.
"Management Percentage" has the meaning ascribed to such term in Section
4.01(c) of the LLC Agreement.
"Return Multiple" has the meaning ascribed to such term in Section 4.01(c)
of the LLC Agreement.
"Tier II Price" means, with respect to a particular Public Offering
Liquidation, the quotient of (x) the amount that would result in a Return
Multiple of 3.5 if the Liquidation FMV for such liquidation were equal to such
amount, divided by (y) the number of shares of Common Stock held by the LLC
immediately prior to such liquidation.
Section 6. Confidentiality, Noncompete, and Nonsolicitation.
(a) Nondisclosure and Nonuse of Confidential Information. Executive
shall not willfully disclose or use at any time, either during his employment
with the Corporation or thereafter, any Confidential Information (as defined
below) of which Executive is or becomes aware, whether or not such information
is developed by him, except to the extent that such disclosure or use is
directly related to and required by Executive's performance of duties assigned
to Executive by the LLC or the Corporation. Executive shall take all
appropriate steps to safeguard Confidential Information and to protect it
against disclosure, misuse, espionage, loss and theft. As used in this
Agreement, the term "Confidential Information" means information that is not
generally known to the public and that is used, developed or obtained by the
LLC, the Corporation, or its Subsidiaries in connection with their business,
including but not limited to (i) products or services, (ii) fees, costs and
pricing structures, (iii) designs, (iv) analysis, (v) drawings, photographs and
reports, (vi) computer software, including operating systems, applications and
program listings, (vii) flow charts, manuals and documentation, (viii) data
bases, (ix) accounting and business methods, (x) inventions, devices, new
developments, methods and processes, whether patentable or unpatentable and
whether or not reduced to practice, (xi) customers and clients and customer or
client lists, (xii) copyrightable works, (xiii) all technology and trade
secrets, (xiv) strategic plans, business plans, budgets and financial models,
and (xv) all similar and related information in whatever form. Notwithstanding
the foregoing, "Confidential Information" shall not include any information (A)
of which Executive became aware prior to his affiliation with the Corporation
and the LLC, (B) of which Executive learns from sources other than the LLC, the
Corporation or its Subsidiaries or (C) which is disclosed in a prospectus or
other documents for dissemination to the public or published in a form generally
available to the public prior to the date Executive proposes to
17
disclose or use such information. Information shall not be deemed to have been
published merely because individual portions of the information have been
separately published, but only if all material portions thereof have been
published.
(b) The Corporation's Ownership of Intellectual Property.
(i) Acknowledgment of Corporation Ownership. In the event that
Executive as part of his activities on behalf of the Corporation generates,
creates, authors or contributes to any invention, design, new development,
device, product, method or process (whether or not patentable or reduced to
practice or constituting Confidential Information), any copyrightable work
(whether or not constituting Confidential Information) or any other form of
Confidential Information relating directly or indirectly to the
Corporation's business as now or hereafter conducted (collectively,
"Intellectual Property"), Executive acknowledges that such Intellectual
Property is the exclusive property of the Corporation and hereby assigns
all right, title and interest in and to such Intellectual Property to the
Corporation. Any copyrightable work prepared in whole or in part by
Executive will be deemed "a work made for hire" under Section 201(b) of the
1976 Copyright Act, and the Corporation shall own all of the rights
comprised by the copyright therein. Executive shall promptly and fully
disclose all Intellectual Property to the Corporation and shall cooperate
with the Corporation to protect the Corporation's interests in and rights
to such Intellectual Property (including, without limitation, providing
reasonable assistance in securing patent protection and copyright
registrations and executing all documents as reasonably requested by the
Corporation, whether such requests occur prior to or after termination of
Executive's employment with the Corporation).
(ii) Executive Invention. Executive understands that Section
6(b)(i) of this Agreement regarding the Corporation's ownership of
Intellectual Property does not apply to any invention for which no
equipment, supplies, facilities or trade secret information of the
Corporation were used and which was developed entirely on Executive's own
time, unless (A) the invention relates to the business of the Corporation
or to the Corporation's actual or demonstrably anticipated research or
development or (B) the invention results from any work performed by
Executive for the Corporation.
(c) Delivery of Materials upon Termination of Employment. As requested
by the Corporation from time to time and upon the termination of
18
Executive's employment with the Corporation for any reason, Executive shall
promptly deliver to the Corporation all copies and embodiments, in whatever
form, of all Confidential Information and Intellectual Property in Executive's
possession or within his control (including, but not limited to, written
records, notes, photographs, manuals, notebooks, documentation, program
listings, flow charts, magnetic media, disks, diskettes, tapes and all other
materials containing any Confidential Information or Intellectual Property)
irrespective of the location or form of such material and, if requested by the
Corporation, shall provide the Corporation with written confirmation that all
such materials have been delivered to the Corporation.
(d) Noncompete. Executive acknowledges and agrees with the Corporation
and the LLC that in the course of his employment with the Corporation he shall
become familiar with the Corporation's trade secrets and with other Confidential
Information concerning the Corporation and the LLC and their respective
affiliates, that Executive's services to the Corporation and the LLC are unique
in nature and of an extraordinary value to the Corporation and the LLC, and that
the Corporation and the LLC would be irreparably damaged if Executive were to
provide similar services to any person or entity competing with the LLC or the
Corporation or engaged in a similar business. In connection with the issuance
to Executive of the Executive Securities hereunder, in consideration of and as
an inducement to the LLC's and the Corporation's entering into this Agreement
and the Corporation's agreeing to issue the Tier I and Tier II Options to
Executive and to assume the obligations of the LLC upon dissolution thereof, and
in further consideration of the Noncompete Compensation (as defined below),
Executive accordingly covenants and agrees with the Corporation and the LLC that
during the Noncompete Period (as defined below), Executive shall not, directly
or indirectly, either for himself or for or through any other individual,
corporation, partnership, joint venture or other entity, participate in any
business or enterprise conducting or proposing to conduct business in any
Covered State which engages or proposes to engage in the provision of
telecommunications services or in any other business similar to or competitive
with any business engaged in by the Corporation during the period of time in
which Executive is employed by the Corporation.
For purposes of this Agreement, (i) the term "participate in" shall
include, without limitation, having any direct or indirect interest in any
corporation, partnership, joint venture or other entity, whether as a sole
proprietor, owner, stockholder, partner, joint venturer, creditor or otherwise,
or rendering any direct or indirect service or assistance to any individual,
corporation, partnership, joint venture or other business entity (whether as a
director, officer, manager, representative, supervisor, employee, agent,
consultant or otherwise), other than ownership of up to 2% of the outstanding
stock of any class which is publicly
19
traded and (ii) the term "Covered State" means (A) Connecticut, Delaware,
Illinois, Indiana, Maine, Massachusetts, Michigan, New Hampshire, New Jersey,
New York, Ohio, Pennsylvania, Rhode Island and Vermont, (B) any State in which
the Corporation is engaged in business or as to which the Corporation has at any
time had an Approved Business Plan to engage in business as of the date of
termination of Executive's employment with the Corporation and (C) any other
State for which a business plan has been submitted to the Board pursuant to the
Transaction Agreement as of or prior to the termination of Executive's
employment or for which Corporation personnel have taken substantial steps
towards completing with a view to so submitting, provided, that any such State
under this clause (C) shall cease to be a Covered State if such business plan
does not become an Approved Business Plan within the earlier of (x) 180 days
after such submission and (y) 180 days after the termination of Executive's
Employment, and, in each case, the Corporation's management and the LLC have
attempted in good faith during such period to reach agreements that would enable
such plan to become an Approved Business Plan. Executive agrees that this
covenant is reasonable with respect to its duration, geographical area and scope
and is fully enforceable.
(e) Nonsolicitation. During the Noncompete Period, Executive shall not
(i) induce or attempt to induce any employee, officer or consultant of the
Corporation or any Subsidiary to leave the employ of the Corporation or any
Subsidiary, or in any way interfere with the relationship between the
Corporation or any Subsidiary and any employee, officer or consultant thereof,
(ii) hire directly or through another entity any person who was an employee of
the Corporation or any Subsidiary at any time during the twelve months prior to
the date such person is to be so hired, or (iii) induce or attempt to induce any
customer, supplier, licensee or other business relation of the LLC, the
Corporation or any Subsidiary to cease doing business with the LLC, the
Corporation or any Subsidiary, or in any way interfere with the relationship
between any such customer, supplier, licensee or business relation and the LLC,
the Corporation and its Subsidiaries (including, without limitation, making any
negative statements or communications concerning the LLC, the Corporation or any
Subsidiary).
(f) Noncompete Period; Noncompete Compensation. The "Noncompete Period"
shall commence on the date hereof and shall continue until the later of (A) the
fourth anniversary of the date hereof and (B) the second anniversary of the date
of termination of employment; provided that the Noncompete Period shall
terminate if at any time after the date of termination the Corporation ceases to
pay Executive his Noncompete Compensation (unless Executive violates any
covenant set forth in this Section 6, in which case the Noncompete Period shall
continue even absent payment of the Noncompete Compensation). The Corporation
will notify the Executive within 30 days after
20
termination of employment whether the Corporation intends to enforce this non-
compete covenant. In the event of termination of Executive's employment without
Cause, if the Corporation so notifies the Executive in writing that this
covenant will be enforced against the Executive, then the Corporation must give
the Executive 60 days' notice of the date on which this covenant will cease to
be enforced and on which the related Noncompete Compensation will cease to be
paid (provided that if Executive violates any covenant set forth in this Section
6, the Noncompete Period shall continue without the need for any further
Noncompete Compensation). "Noncompete Compensation" shall consist of 100% (or in
the case of termination with Cause, 50%) of the base salary that Executive
received as compensation from the Corporation and its Subsidiaries immediately
prior to termination (Executive's "Previous Salary") together with the
continuation of the medical benefits that the Corporation provided to Executive
immediately prior to termination (Executive's "Previous Benefits"); provided
that if at any time during the Noncompete Period Executive obtains other
employment elsewhere, Executive shall immediately notify the Corporation to such
effect, and Executive's Noncompete Compensation shall during the period of such
employment (i) be reduced (but not below zero) by Executive's compensation for
such employment (but where the Corporation pays only 50% of the Previous Salary,
as aforesaid, only reduced by the amount of compensation from such other
employment in excess of such 50% of the Previous Salary) and (ii) not include
the continued provision of medical benefits if such employment provides medical
benefits comparable to the Previous Benefits. The Noncompete Compensation shall
not constitute an obligation to pay any severance to such Executive but simply
means that so long as the Corporation pays the Noncompete Compensation up to the
time the Executive first violates any covenant set forth in this Section 6, the
Noncompete Period will remain in full force and effect for its full term.
Payment of Noncompete Compensation, if any, will be paid in accordance with the
Corporation's normal payroll practices.
(g) Judicial Modification. Executive acknowledges that the terms of
this Section 6 were negotiated in good faith by the parties hereto, are
reasonable and necessary in light of Executive's unique position, responsibility
and knowledge of the operations of the Corporation and the unfair advantage that
Executive's knowledge and expertise concerning Corporation's business would
afford a competitor of the Corporation and are not more restrictive than
necessary to protect the legitimate interests of the parties hereto. If the
final judgment of a court of competent jurisdiction, or any final non-appealable
decision of an arbitrator in connection with a mandatory arbitration, declares
that any term or provision of this Section 6 is invalid or unenforceable, the
parties agree that the court making the determination of invalidity or
unenforceability shall have the power to reduce the scope, duration, or
geographic area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable
21
term or provision with a term or provision that is valid and enforceable and
that comes closest to expressing the intention of the invalid or unenforceable
term or provision, and this Agreement shall be enforceable as so modified after
the expiration of the time within which the judgment or decision may be
appealed.
(h) Dispute Resolution. Arbitration. All claims, disputes,
controversies and other matters in question arising out of or relating to this
Agreement, or to the alleged breach hereof, shall be settled by preliminary
negotiation between the Board and the Executive (the "parties") or, if such
preliminary negotiation is unsuccessful for any reason (but in any event not
later than 10 days after commencement of such negotiation), by binding
arbitration in accordance with the procedures set forth in this Section 6(h).
Without limiting the mandatory arbitration provision set forth in this Section
6(h), each of the parties hereto (i) waives the right to bring an action in any
court of competent jurisdiction with respect to any such claims, controversies
and disputes (other than any such action to enforce the award or other remedy
resulting from any arbitration pursuant to this Section 6(h) or to prevent any
arbitrator from exceeding the authority granted to the arbitrators hereunder)
and (ii) waives the right to trial by jury in any suit, action or other
proceeding brought on, with respect to or in connection with this Agreement.
(i) Binding Arbitration. Upon service of a notice of demand for
binding arbitration by any party hereto, arbitration shall be commenced and
conducted as follows:
(A) Arbitrators. All claims, disputes, controversies and
other matters (collectively "matters") in question shall be referred
to and decided and settled by a panel of three arbitrators with
experience in analyzing, understanding, and making determinations
concerning matters in the telecommunications industry, one selected by
each of the parties within 15 days after such notice of demand (with
the parties to notify each other of their respective selections at the
same time) and the third to be selected by the two arbitrators so
selected within 15 days of their selection pursuant to this subclause
(A),
(B) Cost of Arbitration. The cost of each arbitration
proceeding, including without limitation the arbitrators' compensation
and expenses, hearing room charges, court reporter transcript charges,
etc., shall be allocated among the parties based upon the percentage
which the portion of the Contested Amount not awarded to each party
bears to the amount actually contested by such party. The arbitrators
shall also award the party that
22
prevails substantially in its pre-hearing position its reasonable
attorneys' fees and costs incurred in connection with the arbitration.
The arbitrators are specifically instructed to award attorneys' fees
and expenses for instances of abuse of the discovery process. All
costs of arbitration shall be paid initially 50% by the LLC (or after
the dissolution of the LLC, the Corporation) and 50% by the Executive
pending the determination of the arbitrators pursuant to the previous
sentences.
(C) Situs of Proceedings. The situs of the arbitration
shall be in New York, New York, or such other place as is mutually
agreeable to the parties.
(ii) Pre-hearing Discovery. The parties shall have the right to
conduct and enforce pre-hearing discovery in accordance with the then
current Federal Rules of Civil Procedure, subject to the following
limitations: (A) each party may serve no more than one set of
interrogatories which set shall ask no more than twenty questions; (B) each
party may depose the other party's expert witnesses who will be called to
testify at the hearing, plus up to six fact witnesses without regard to
whether they will be called to testify (each party will be entitled to a
total of not more than 24 hours of depositions of the other party's
witnesses, and not more than 6 hours with respect to any single witness);
and (C) document discovery and other discovery shall be under the control
of and enforceable by the arbitrators, and all disputes relating thereto
shall be decided by the arbitrators. Notwithstanding any contrary
foregoing provisions, the arbitrators shall have the power and authority
to, and to the fullest extent practicable shall, abbreviate arbitration
discovery in a manner which is fair to all parties in order to expedite the
conclusion of each alternative dispute resolution proceeding.
(iii) Pre-hearing Conference. Within thirty (30) days after
filing of notice of demand for binding arbitration, the arbitrators shall
hold a pre-hearing conference to establish schedules for completion of
discovery, for exchange of exhibit and witness lists, for arbitration
briefs, for the hearing, and to decide procedural matters and all other
questions that may be presented.
(iv) Hearing Procedures. The hearing shall be conducted to
preserve its privacy and to allow reasonable procedural due process. Rules
of evidence need not be strictly followed, and the hearing shall be
streamlined as follows: (A) documents shall be self-authenticating, subject
to valid objection by the opposing party; (B) expert reports, witness
23
biographies, depositions and affidavits may be utilized, subject to the
opponent's right of a live cross-examination of the witness in person; (C)
charts, graphs and summaries shall be utilized to present voluminous data,
provided (1) that the underlying data was made available to the opposing
party thirty (30) days prior to the hearing, and (2) that the preparer of
each chart, graph or summary is available for explanation and live cross-
examination in person; (D) the hearing should be held on consecutive
business days without interruption to the maximum extent practicable; and
(E) the arbitrators shall establish all other procedural rules for the
conduct of the arbitration in accordance with the rules of arbitration of
the American Arbitration Association.
(v) Governing Law. This arbitration provision shall be governed
by, and all rights and obligations specifically enforceable under and
pursuant to, the Federal Arbitration Act (9 U.S.C. (S) 1, et seq.) (the
"FAA"). Notwithstanding the foregoing, this Section 6(h) shall be
construed to the maximum extent possible to comply with the laws of the
State of Delaware, including the Uniform Arbitration Act (10 Del.C. (S)
5701, et seq.) (the "Delaware Arbitration Act"). If, nevertheless, it
shall be determined by a court of competent jurisdiction that any provision
or wording of this Section 6(h), including any rules of the FAA or the
American Arbitration Association referred to therein, shall be invalid or
unenforceable under said Delaware Arbitration Act or other applicable law,
such invalidity or unenforceability should not invalidate the entire
Section 6(h). In that case, this Section 6(h) shall be construed so as to
limit any term or provision so as to make it valid or enforceable within
the requirements of the Delaware Arbitration Act or other applicable law,
and, in the event such term or provision cannot be so limited, this Section
6(h) shall be construed to omit such invalid or unenforceable term or
provision.
(vi Consolidation. No arbitration shall include, by
consolidation, joinder or in any other manner, any additional person not a
party to this Agreement (other than affiliates of any such party, which
affiliates may be included in the arbitration), except by written consent
of the parties hereto containing a specific reference to this Agreement.
(vii Award; Time Limit. The arbitrators are empowered to render
an award of general compensatory damages and equitable relief (including,
without limitation, injunctive relief), but are not empowered to award
punitive damages. The award rendered by the arbitrators (A) shall be
final; (B) shall, except as required by law, not constitute a basis for
collateral estoppel as to any issue; and (C) shall, except as required by
law, not be subject to vacation or modification. The arbitrators shall
render
24
any award or otherwise conclude the arbitration no later than 120 days
after the date notice of demand for binding arbitration is given pursuant
to this Section 6(h).
(viii Confidentiality. The parties hereto will maintain the
substance of any proceedings hereunder in confidence and the arbitrators,
prior to any proceedings hereunder, will sign an agreement whereby the
arbitrator agrees to keep the substance of any proceedings hereunder in
confidence.
Section 7. Definitions.
"Approved Business Plan" has the meaning ascribed to such term in the
Transaction Agreement.
"Base Rate" means, on any date, a variable rate per annum equal to the rate
of interest most recently published by The Wall Street Journal as the "prime
rate" at The Chase Manhattan Bank.
"Basic Contributions" has the meaning ascribed to such term in the LLC
Agreement.
"Board" means the board of representatives of the LLC (or, after the
dissolution of the LLC, the board of directors of the Corporation).
"Cause" means (i) Executive's theft or embezzlement, or attempted theft or
embezzlement, of money or property of the Corporation or the LLC, Executive's
perpetration or attempted perpetration of fraud, or Executive's participation in
a fraud or attempted fraud, on the Corporation or the LLC, or Executive's
unauthorized appropriation of, or attempt to misappropriate, any tangible or
intangible assets or property of the Corporation or the LLC, (ii) any act or
acts of disloyalty, misconduct or moral turpitude by Executive which the Board
determines in good faith has been or is likely to be demonstrably injurious to
the interest, property, operations, business or reputation of the Corporation or
the LLC, or Executive's conviction of a crime other than minor traffic
violations or other similar minor offenses, (iii) Executive's repeated
intentional refusal or willful failure (other than by reason of Disability) to
carry out reasonable instructions by his superiors or the Board or the
Corporation's Board of Directors or (iv) Executive's breach of any provision of
Section 6.
"Class A Units" has the meaning ascribed to such term in the LLC Agreement.
25
"Class B Units" has the meaning ascribed to such term in the LLC Agreement.
"Class C Units" has the meaning ascribed to such term in the LLC Agreement.
"Class D Units" has the meaning ascribed to such term in the LLC Agreement.
"Common Stock" means the Corporation's common stock, par value $0.01 per
share.
"Disability" means (i) any permanent physical or mental incapacity or
disability rendering the Executive unable or unfit to perform effectively the
duties and obligations of his employment or to participate effectively and
actively in the management of the Corporation, or (ii) any illness, accident,
injury, physical or mental incapacity or other disability, where such condition
has rendered the Executive unable or unfit to perform effectively the duties and
obligations of his employment or to participate effectively and actively in the
management of the Corporation for a period of at least 90 consecutive days or
four months in any twelve-month period (in either case, as determined in the
good faith judgment of the Board).
"Executive Purchaser" means Executive and any Person who acquires Executive
Securities pursuant to Section 4(c)(i) and has executed a counterpart of this
Agreement, the LLC Agreement and the Transaction Agreement, agreeing to be bound
by the terms of each such agreement.
"Executive Securities" means (i) the Class B Units issued to the Executive
hereunder (but not including any Class C Units or Class D Units issued by the
LLC in exchange for such Class B Units), (ii) upon dissolution of the LLC, any
securities of the Corporation distributed in respect of the securities referred
to in clause (i) above pursuant to such dissolution, (iii) any Tier I Options or
Tier II Options issued to any holder of Executive Securities hereunder, (iv) any
other securities of the LLC or the Corporation hereafter acquired by Executive,
and (v) any securities issued directly or indirectly with respect to the
foregoing securities by way of a split, dividend, or other division of
securities, or in connection with a combination of securities, recapitalization,
merger, consolidation, or other reorganization, or upon conversion or exercise
of any of the foregoing securities. Executive Securities for purposes of this
Agreement shall not include any securities issued to any other executive of the
Corporation under any other agreement. As to any particular securities
constituting Executive Securities, such
26
securities shall cease to be Executive Securities when they have been (a)
effectively registered under the Securities Act and disposed of in accordance
with the registration statement covering them, (b) distributed to the public
through a broker, dealer or market maker pursuant to Rule 144 under the
Securities Act (or any similar provision then in force), (c) repurchased by any
holder of Class A Units, or by the LLC (including in exchange for Class C Units
or Class D Units), the Corporation or any Subsidiary thereof or (d) Transferred
pursuant to an Exempt Transfer under Section 4.
"Good Reason" means (i) a substantial permanent reduction in the scope of
Executive's authority or level of responsibility from that in effect as of the
date hereof for any reason unrelated to Executive's Disability, which has not
been revised by the Corporation within 90 days after timely written notice to
the Corporation containing a reasonably detailed description of such reduction;
or (ii) a relocation of Executive's principal place of employment from its then
existing location to a site which is more than 100 miles from such location.
"Investor Equity" has the meaning ascribed such term in the Transaction
Agreement.
"LLC Agreement" means the limited liability company agreement dated as of
the date hereof, entered into by and among the members of the LLC, as amended
from time to time in accordance with its terms.
"Management Equity" has the meaning ascribed to such term in the
Transaction Agreement.
"MSCP" has the meaning ascribed such term in the LLC Agreement.
"Original Cost" means, at any given time, (i) with respect to any Class B
Units, the total Basic Contributions made with respect to such Class B Units
pursuant to the LLC Agreement prior to such time, (ii) with respect to any
Common Stock, the Basic Contribution attributable to such Common Stock based on
the number of shares of Common Stock received by Executive upon the dissolution
of the LLC, and (iii) with respect to any other securities, the original price
paid upon issuance of such securities.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
27
"Public Offering" means any underwritten sale of the Corporation's common
stock pursuant to an effective registration statement under the Securities Act
filed with the Securities and Exchange Commission on Form S-1 (or a successor
form adopted by the Securities and Exchange Commission); provided that the
following shall not be considered a Public Offering: (i) any issuance of common
stock as consideration or financing for a merger or acquisition, and (ii) any
issuance of common stock or rights to acquire common stock to employees of the
Corporation or its Subsidiaries as part of an incentive or compensation plan.
"Registration Rights Agreement" means the Registration Rights Agreement
dated as of the date hereof, by and between the Corporation, the holders of
Investor Equity and the holders of Management Equity, as amended from time to
time in accordance with the terms thereof.
"Securities Act" means the Securities Act of 1933, as amended, and
applicable rules and regulations thereunder.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended, and applicable rules and regulations thereunder.
"Subsequent Contributions" has the meaning ascribed to such term in the
Transaction Agreement.
"Subsidiary" means, with respect to any Person, any corporation, limited
liability company, partnership, association or other business entity of which
(i) if a corporation, a majority of the total voting power of shares of stock
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a limited
liability company, partnership, association or other business entity, a majority
of the partnership or other similar ownership interest thereof is at the time
owned or controlled, directly or indirectly, by any Person or one or more
Subsidiaries of that Person or a combination thereof. For purposes hereof, a
Person or Persons shall be deemed to have a majority ownership interest in a
limited liability company, partnership, association or other business entity if
such Person or Persons shall be allocated a majority of limited liability
company, partnership, association or other business entity gains or losses or
shall be or control any managing director, managing member, manager or general
partner of such limited liability company, partnership, association or other
business entity.
28
"Transaction Agreement" means the Transaction Agreement dated as of the
date hereof, by and between the Corporation and the LLC and the holders of
interests in the LLC, as amended from time to time in accordance with the terms
thereof.
"Vesting Termination Breach" means (i) any breach by Executive of Section
6(a), Section 6(d) or Section 6(e) or (ii) any breach by Executive of any other
provision of Section 6 which is material or is intentionally and knowingly
committed by Executive.
Section 8. Miscellaneous Provisions.
(a Further Assurances; Voting Proxy. As a condition to the LLC's and
the Corporation's entering into this Agreement and the LLC's issuance of
Executive Securities to the Executive Purchasers, and as further consideration
therefor:
(i Executive hereby unconditionally guarantees the full and
prompt performance of each Executive Purchaser's obligations under this
Agreement and under each of the agreements contemplated hereby to which
such Executive Purchaser is a party, and Executive agrees that he will take
all necessary or desirable actions to ensure such performance as are
reasonably requested by the LLC or the Corporation. Executive further
agrees that he will not provide any directions to an Executive Purchaser
that are contrary to any obligation imposed on such Executive Purchaser
under this Agreement or under such other agreements, and that Executive
will not fail to provide any directions to an Executive Purchaser if such
failure would cause an Executive Purchaser not to satisfy its obligations
hereunder or thereunder. This guarantee shall be irrevocable with respect
to each Executive Security held by an Executive Purchaser (and shall
survive any transfer thereof, or the death, disability, incompetency, or
bankruptcy of such Executive Purchaser) until such time as such Executive
Security is transferred in accordance with the terms hereof to a Person
other than a member of Executive's Family Group, at which time this
guarantee shall be deemed revoked with respect to such transferred security
(but not with respect to any other Executive Securities). No invalidity,
irregularity or unenforceability of this Agreement or such other agreements
by reason of an Executive Purchaser's incapacity, minor status,
incompetency, bankruptcy, insolvency, or other similar occurrence shall
impair, affect or be a defense to the obligations of Executive under this
guarantee.
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(ii Each Executive Purchaser (other than Executive) hereby
appoints Executive as his true and lawful proxy and attorney-in-fact, with
full power of substitution, to vote all of such Executive Purchaser's
Executive Securities on all matters to be voted on by the holders of such
securities (whether as a member vote, a shareholder vote, an approval right
under this Agreement or the other agreements contemplated hereby, or
otherwise). These proxies and powers granted by each Executive Purchaser
pursuant to this Section 8 are coupled with an interest, and are given to
secure such Executive Purchasers' obligations under this Agreement and the
other agreements contemplated hereby to which the Executive Purchasers are
parties. Such proxies and powers shall be irrevocable with respect to each
Executive Security held by an Executive Purchaser (and shall survive and
not be affected by any transfer thereof, or the death, disability,
incompetency, or bankruptcy of such Executive Purchaser) until such time as
such Executive Security is transferred in accordance with the terms hereof
to a Person other than a member of Executive's Family Group, at which time
such proxy shall be deemed revoked with respect to such transferred
security (but not with respect to any other Executive Securities).
(b Transfers in Violation of Agreement. Any Transfer or attempted
Transfer of any Executive Securities in violation of any provision of this
Agreement shall be void, and none of the LLC, the Corporation, or any Subsidiary
thereof shall record such purported Transfer on its books or treat any purported
transferee of such Executive Securities as the owner of such securities for any
purpose.
(c Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
(d Complete Agreement. This Agreement, those documents expressly
referred to herein and other documents of even date herewith embody the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the
30
parties, written or oral, which may have related to the subject matter hereof in
any way.
(e Counterparts. This Agreement may be executed in separate
counterparts, none of which need contain the signature of more than one party
hereto but each of which shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(f Successors and Assigns. (i) Except as otherwise provided herein,
this Agreement shall bind the parties hereto and their respective successors and
permitted assigns and shall inure to the benefit of and be enforceable by the
parties hereto and their respective successors and permitted assigns whether so
expressed or not.
(ii Each of the Corporation, the LLC, the Executive Purchaser, and
each holder of Executive Securities hereby acknowledges that immediately upon
and after the dissolution of the LLC, (A) all contractual obligations and duties
of the LLC hereunder shall thereafter bind and be enforceable against the
Corporation, (B0 all rights and powers granted to the LLC hereunder (including,
without limitation, the repurchase rights set forth in Section 3) shall inure to
the benefit of and be enforceable by the Corporation, (C) all references to the
LLC shall thereafter be deemed to be references to the Corporation, and (D)
except if the context clearly otherwise requires, this Agreement shall
thereafter operate and be construed as if the word "Corporation" were
substituted for the word "LLC" in each such instance.
(g Governing Law; Submission to Jurisdiction. This Agreement shall be
governed by, and construed under, the laws of the State of Delaware, all rights
and remedies being governed by said laws, without regard to conflict of law
principles. Each of the parties hereto agrees (i) that this Agreement involves
at least $100,000 and (ii) that this Agreement has been entered into by the
parties hereto in express reliance upon 6 Del.C. (S) 2708. Each party hereby
irrevocably and unconditionally agrees (a) to be subject to the jurisdiction of
the courts of the State of Delaware and the federal courts sitting in the State
of Delaware or in the County of New York in the State of New York and (b) to the
extent such party is not otherwise subject to service of process in the State of
31
Delaware, to appoint and maintain an agent in the State of Delaware as such
party's agent for acceptance of legal process, and that service made pursuant to
(b) above shall have the same legal force and effect as if served upon said
party personally within the State of Delaware. For purposes of implementing the
parties' agreement to appoint and maintain an agent for service of process in
the State of Delaware, each such party that has not as of the date hereof
already duly appointed such an agent does hereby appoint RL&F Service Corp., One
▇▇▇▇▇▇ Square, 10th Floor, Wilmington, New Castle County, Delaware 19801, as
such agent.
(h Remedies. Each of the parties to this Agreement (including any
holder of Investor Equity or employee of the Corporation to which the LLC
assigns any of its repurchase rights under Section 3 hereof) shall be entitled
to enforce its rights under this Agreement specifically, to recover damages and
costs (including reasonable attorney's fees and expenses) caused by any breach
of any provision of this Agreement and to exercise all other rights existing in
its favor. The parties hereto agree and acknowledge that money damages would
not be an adequate remedy for any breach of the provisions of this Agreement and
that any party may in its sole discretion apply to any court of law or equity of
competent jurisdiction (without posting any bond or deposit) for specific
performance and/or other injunctive relief in order to enforce or prevent any
violations of the provisions of this Agreement.
(i Amendment, Modification, or Waiver. The provisions of this
Agreement may be amended, modified, or waived only with the prior written
consent of the LLC and the Executive.
(j Third-Party Beneficiaries. The parties hereto acknowledge and
agree that certain provisions of this Agreement are intended for the benefit of
certain holders of Investor Equity or employees of the Corporation to which the
LLC assigns any of its repurchase rights under Section 3 hereof, that such
Persons are third-party beneficiaries of this Agreement and that the provisions
of this Agreement shall be enforceable by such Persons as provided herein.
(k Business Days. If any time period for giving notice or taking
action hereunder expires on a day which is a Saturday, Sunday or legal holiday
in the State of New York, the time period shall be automatically extended to the
business day immediately following such Saturday, Sunday or holiday.
(l Descriptive Headings; Interpretation; No Strict Construction. The
descriptive headings of this Agreement are inserted for convenience only and do
not constitute a substantive part of this Agreement. Whenever required by the
context, any pronoun used in this Agreement shall include the corresponding
masculine, feminine or neuter forms, and the singular forms of nouns, pronouns,
and verbs shall include the plural and vice versa. Reference to any agreement,
document, or instrument means such agreement, document, or instrument as
32
amended or otherwise modified from time to time in accordance with the terms
thereof, and if applicable hereof. The use of the words "include" or "including"
in this Agreement shall be by way of example rather than by limitation. The use
of the words "or," "either" or "any" shall not be exclusive. The parties hereto
have participated jointly in the negotiation and drafting of this Agreement. In
the event an ambiguity or question of intent or interpretation arises, it is the
intent of the parties that this Agreement shall be construed as if drafted
jointly by the parties hereto, and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any of the
provisions of this Agreement.
(m Notices. All notices, requests or other communications to any
party hereunder shall be in writing (including facsimile transmission) and shall
be given,
if to Executive, to:
Choice One Communications Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
if to the LLC, to:
c/▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Capital Partners III, L.P.
1221 Avenue of the Americas
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
33
and to:
Fleet Equity Partners VI, L.P.
▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Paul, Hastings, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
and to:
▇▇▇▇▇▇-▇▇▇▇▇▇ Media Partners, L.P.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ Constant & ▇▇▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
34
if to the Corporation, to:
Choice One Communications Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Nixon, Hargrave, Devans & ▇▇▇▇▇ LLP
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇, III
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
and if to any member of the LLC or to any other holder of Common Stock, to the
address or facsimile set forth on the books of the LLC or the Corporation or any
other address or facsimile number as a party may hereafter specify for such
purpose to the LLC. Notwithstanding the foregoing, no holder of Investor Equity
or its counsel shall be entitled to notice if such holder holds less than 3% in
aggregate of all Investor Equity then outstanding.
All such notices, requests and other communications shall be deemed
received on the date of receipt by the recipient thereof if received prior to 5
p.m. in the place of receipt and such day is a business day in the place of
receipt. Otherwise, any such notice, request or communication shall be deemed
not to have been received until the next succeeding business day in the place of
receipt.
* * * *
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
CHOICE ONE COMMUNICATIONS L.L.C.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------------
Its: Authorized Person
-----------------------------------------
CHOICE ONE COMMUNICATIONS INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------------
Its: President and Chief Executive Officer
-----------------------------------------
EXECUTIVE
By: /s/ ▇▇▇ ▇▇▇▇▇▇-▇▇▇
---------------------------------------------
36
Execution of Counterpart Agreeing to be Bound to
Executive Purchase Agreement by Executive Purchaser
Name of Individual:
-----------------------------
Signature:
--------------------------------------
Date:
37